SCTY Stock: This Could Send SolarCity Corp Skyrocketing?

By Gaurav S. Iyer, IFC Published : December 16, 2015

SCTY Stock Forecast for 2016

Until very recently, it seemed like SolarCity Corporation (NASDAQ:SCTY) couldn’t catch a break. However, the recent climate change accord out of Paris turned investors bullish on SCTY stock, lifting shares more than 21% in the last week.

It could be easy to brush off those gains as an exaggerated response from the market, especially since implementation of the climate treaty falls to individual governments. Historically, these types of multilateral agreements disintegrate because there’s no one to enforce them, so maybe the optimism on SCTY stock was overblown.

Or maybe not. Solar stocks have been hit hard this year, in part because traditional fuels like natural gas became dirt-cheap, but also because a crucial tax credit expires at the end of 2016. It would be a devastating blow to SolarCity to lose that tax credit.

The company’s fate depends heavily on whether or not Congress renews the provision, which, in turn, depends on how politicized the issue becomes. If the votes aren’t there, the tax credit will get axed and SolarCity will be left out in the cold.

Luckily for SCTY stockholders, the Paris accord happened at just the right time.

SolarCity Needs Political Capital

SCTY stock could maintain this positive rally once investors realize how much the politics of solar power can change after the Paris accord. Political leaders always have a list of priorities and the further down that list a topic slips, the less protected it is.

Perception matters (which is basically why the public relations industry exists) and it’s crucial to politics. Boosting the profile of an issue can force people or political parties to take a side, which then generates media coverage and broader awareness.

In most cases, the victor was simply less willing to compromise, because it mattered more to them. Republicans in Congress are likely to vote against the tax credit, while many Democrats will probably support an extension. To be clear, this tax credit is for homeowners who want to make the switch to rooftop solar panels. (Source: “Solar Investment Tax Credit,” Solar Energy Industries Association, last accessed December 15, 2015.)

It helps companies like SolarCity indirectly, but the government isn’t directly picking winners or losers. The partisan fight is set to kickoff, but now the Democrats are more inclined to stand their ground. By association with the climate deal, the tax credit gets bumped up the priority list.

From my vantage point, the Democrats now have a greater incentive to win this fight. It plays really well with their base and it can be slipped into a larger package of environmental policies. The odds are now tilted back in SolarCity’s favor and judging by this week’s recovery, SCTY stock could skyrocket if the credit is renewed.